Power sector efficiency: Spending $310 million to worsen performance

State-owned companies lose efficiency despite World Bank funding, unlikely to meet targets.

ISLAMABAD:

Despite having received $310 million in assistance from the World Bank to improve their efficiency, most state-owned power distribution companies have seen deterioration in their performance, forcing the Washington-based lender to downgrade the project’s rating to ‘unsatisfactory’.

The Electricity Distribution and Transmission Improvement project was downgraded from an earlier rating of “moderately satisfactory”, according to the World Bank’s latest status report, which casts doubt on the ability of the government to complete the project on time.

The international lender typically extends its deadlines when Islamabad fails to meet them, but it is unclear what the bank will do this time. And unlike the World Bank’s normal concessionary interest rates, the $310 million loan for this project is based on market interest rates linked to the London Interbank Offer Rate (Libor). Pakistan signed the agreement with the World Bank in 2008, which envisioned an ambitious plan to improve bill collection and decrease transmission line losses in the national electricity grid, specifically in four of the nine distribution companies, along with the National Transmission and Dispatch Company.

However, instead of improving their efficiency, every company that participated in the project did not meet its bill collection targets, and most are not on track to meet their targets to reduce transmission line losses. The report is based on data from July to December 2010. “There is some progress in achieving the project goals but the pace of implementation remains very slow and at this pace the project is not likely to be completed by its closing date (June 2112),” states the World Bank report.

The companies participating in the project are the Islamabad Electric Supply Company (Iesco), Hyderabad Electric Supply Company (Hesco), Lahore Electric Supply Company (Lesco) and Multan Electric Supply Company (Mesco) and the National Transmission and Dispatch Company (NTDC).

Easily the worst performer is Hesco, which saw a massive decline in bill collection. The programme set baselines on 2007 collection levels. Hesco’s baseline was 86%, which it was expected to improve upon. Instead, the company saw its collections plunge to 49%. The company also seems to miss its June 2012 target of reducing the line losses to 29.4%. As of December, losses stood at 33.9%, though they were down from the baseline of 36.9%.  Even Iesco – known as the most efficient company – saw collections decline to 93.2% against the baseline of 98.1%. The target was to improve collection to 98.6% of total billing.  The company did show improvement in curbing losses by reducing them to 7.7% against a baseline of 12.2%. However, a recent performance audit of Iesco, conducted by the United States Agency for International Development, suggests some manipulation of the numbers by the management to show lower losses. The Planning Commission has not yet made this report public.

Lesco’s collection also decreased to 93.2% against a baseline ratio of 99%. The company’s line losses increased to 13.6% from a baseline ratio of 12.8%.  Mepco’s losses remained at the same level and its collection dropped to 94.8% against a baseline ratio of 98.8%. The project-end target is 99% of total billing, which may not be achieved. The World Bank has also recently downgraded its rating on the Benazir Income Support Programme.

Published in The Express Tribune, July 3^rd, 2011.